Recent research published by the Institute for Economic Research and Policy Consulting (IER, a think-tank in Ukraine) shows that recent anti-corruption measures will save the Ukrainian state around US$6bn per year. The targeting of tax-fraud schemes, gas-sector reforms and better governance for a state-owned monopoly, Naftogaz (the national oil and gas company), and a more transparent public procurement system will contribute to savings. One key challenge, however, is preventing a rollback of these reforms. Another issue lies in establishing accountability; this is especially pertinent, as upcoming elections (which are due in 2019) mean that the political elite will seek to prevent the emergence of corruption scandals.

Despite the sluggish reduction in perceptions of corruption among Ukrainians and internationally, new data show that the fight against corruption—a key demand of the 2014 Euromaidan protests and a stated priority of the current government—has begun to bear fruit. Recent research published in July by the IER demonstrates that efforts to curb corruption have saved the state US$6bn annually—around 5.4% of GDP in 2017.

Closing down the avenues of corruption

The largest savings come from Naftogaz, a company that, for many years, has been a major hotbed for corruption. Before 2014 it produced annual losses of around US$3bn. In 2017 it reported a record profit of US$1.4bn. Much of that change was because of some legal arbitration victories against Gazprom, the Russian state-owned gas monopoly, which lifted a heavy debt burden from Naftogaz, and obliged Gazprom to pay US$4.7bn in compensation (however, this ruling is now being challenged by Gazprom).

Naftogaz has also benefitted from a new electronic procurement system for state contracts. The company believes that, with a total procurement value of HRN119.2bn (US$4.24bn) in 2017, it saved HRN6.9bn in corruption-related costs. Overall, lower prices (resulting from more transparency in public procurement) have saved Ukraine over US$1bn annually, according to the IER. The procurement of medical (especially expensive diagnostic) equipment, for example, has been outsourced mainly to UN agencies.

The closing of holes in the tax system and the targeting of money-laundering schemes, which, according to the IER, have previously resulted in tax avoidance worth over US$2bn per year, have further expanded savings. More broadly, unprecedented levels of access to information—data from state registers, for example—have eliminated many corrupt schemes within the bureaucracy.

A number of challenges remain, however. The most significant of these is the issue of state-owned enterprises, through which the state remains the largest employer in the country. Half-hearted privatisation efforts by the government have, thus far, left the largest companies untouched, and their management sometimes remains highly inefficient. Stricter banking supervision will also be needed to tackle widespread fraud on financial schemes.

More transparency, but not more accountability

The development of civil society since 2014 means that high-level corruption is now much more publicised. The recent establishment of the National Anti-Corruption Bureau (NABU), a specialised investigative agency, and that of the Specialised Anti-Corruption Prosecutor's Office further increased transparency, despite tensions between the agencies. With an e‑declaration system introduced last year, over 1m public officials report their assets annually; however, the verification process remains ineffective at times.

More transparency has yet to translate into more accountability. So far, corruption cases involving senior public officials have uniformly failed in the trial phase. Of the over 200 indictments the NABU has brought to court, only around 10% ended in a conviction, and no senior officials have received jail sentences. A law establishing a specialised anti-corruption court was adopted in June, but we do not believe that it provides sufficient guarantees to ensure the independence of judges from political interference.

The mismatch between higher levels of transparency and stagnant accountability means that perceived corruption levels are decreasing only slowly. According to the corruption perceptions index, made by Transparency International, an international non-governmental organisation, Ukraine has climbed up the rankings—from 142nd place (out of 180 countries) in 2014, to 130th in 2017, level with Myanmar and The Gambia.

In the view of political leaders, potentially threatening the financial and business dealings of some vested interests has to be balanced against the financial support they need to finance their campaigns. Meaningful steps to curb corruption, including the establishment of an independent anti-corruption court, are therefore unlikely, at least until parliamentary elections take place (in November 2019). We expect the achievements made thus far to hold, however. As Petro Poroshenko, the president, will use his broadly positive foreign-policy record during the campaign, he will probably seek to avoid triggering an international scandal by undoing reforms. Yet, so much remains to be done, that Mr Poroshenko has every interest in stepping up efforts to fight against corruption if he wants to attract much-needed foreign direct investment, a precondition for the future economic prospects of the country.